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Optimal Reinsurance for Variance Related Premium Calculation Principles1

Published online by Cambridge University Press:  09 August 2013

Manuel Guerra  and
Maria de Lourdes Centeno
Manuel Guerra
Affiliation:
CEOC and ISEG -T.U.Lisbon, R. Quelhas 6, 1200-781 Lisboa, Portugal, E-mail: mguerra@iseg.utl.pt
Maria de Lourdes Centeno
Affiliation:
CEMAPRE, ISEG -T.U.Lisbon, R. Quelhas 6, 1200-781 Lisboa, Portugal, E-mail: lcenteno@iseg.utl.pt
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Abstract

This paper deals with numerical computation of the optimal form of reinsurance from the ceding company point of view, when the cedent seeks to maximize the adjustment coefficient of the retained risk and the reinsurance loading is an increasing function of the variance.

We compare the optimal treaty with the best stop loss policy. The optimal arrangement can provide a significant improvement in the adjustment coefficient when compared to the best stop loss treaty. Further, it is substantially more robust with respect to choice of the retention level than stop-loss treaties.

Keywords

Adjustment coefficientoptimal reinsurancestop lossstandard deviation premium principlevariance premium principle
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 40 , Issue 1 , May 2010 , pp. 97 - 121
Copyright
Copyright © International Actuarial Association 2010

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Footnotes

1

This research has been supported by Fundação para a Ciência e a Tecnologia (FCT) – project PTDC/ECO/66693/2006 – through PIDDAC, partially funded by the Portuguese State Budget.

References

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